Bonds: Gilts jump, Italian bonds slump
These were the movements in some of the most widely-followed 10-year sovereign bond yields:
US: 2.96% (-4bp)
UK: 1.43% (-3bp)
Germany: 0.56% (+0bp)
France: 0.80% (+0bp)
Spain: 1.31% (+1bp)
Italy: 1.94% (+5bp)
Portugal: 1.73% (+1bp)
Greece: 4.09% (-11bp)
Japan: 0.05% (-0bp)
Longer-dated Gilts found a bid on both the short and long ends of the UK government bond curve after the Bank of England lowered both its inflation and growth forecasts for 2018, contrary to some analysts' expectations for a 'hawkish hold' on policy.
Nevertheless, while rate-setters on the Monetary Policy Committee stressed that the reason for their downgraded inflation projections were lower estimates of the so-called 'pass-through' effect to prices from a weaker pound, at least a few analysts were left scratching their heads as to the exact reasons behind the lowered projections for growth.
Judging by their comments following BoE Governor Mark Carney's press conference, analysts also appeared quite divided on the timing for the next hike in Bank Rate, with some expecting that it would come in August, others in November and yet others still saying it would not materialise in 2018 at all.
On one end of analysts' opinions, before the MPC's decision was announced, HSBC's Daniela Russell cut her year-end forecast for the yield on 10-year Gilts by 30 basis points, to 1.0%, according to Bloomberg, versus a median forecast of 1.8%.
As an aside, 10-year Gilt prices were also higher despite the weaker, albeit short-lived, tone to trading in Sterling, which ended the session just slightly lower against the US dollar.
In the background, similarly-dated US Treasuries were wanted after the Bureau of Labor Statistics reported that core consumer prices in the States advanced by just 0.1% month-on-month in April (consensus: 0.2%), as a drop in airfares helped to offset still strong costs for shelter.
Commenting on the US data, Pooja Sriram at Barclays Research said: "We take no negative signal from the softer-than-expected prints in April, given that they were driven largely by weakness in volatile categories such as airline fares.
"Looking further out, we expect fiscal stimulus to keep the US economy on an above-trend growth path, leading to increased resource utilization over time, which should help keep inflation around the Fed’s 2% target for the rest of the year."
The MPC wasn't alone in delivering a 'dovish hold' on Thursday.
Overnight, New Zealand's monetary authority opted to keep the cash rate at 1.75%, with central bank chief Adrian Orr saying that it would remain there "for some time to come".
Across the Channel meanwhile, the so-called 'risk spread' on Italian government bonds widened, as traders fretted about the potential for a coalition between that country's two largest establishment parties.
On Wednesday evening, Silvio Berlusconi acquiesced to a demand from the Five Start movement that the political party he leads remain outside of any coalition government.